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3 Entities That Can Make or Break Health Startups—& 3 Ways to Win Them Over

Aaron Ali, M.D.

CEO and Cofounder, MedtoMarket Consulting

So you want to be a medical startup? You and your company have created what you think is an innovative product. You have raised funds from friends and family, or perhaps you even have arrived at the angel investor or venture capital level.

But before you invest hundreds of thousands—or even millions—into research and development or maybe FDA approval, ask yourself: Do you really have a product the healthcare segment wants or needs? Are you sure you have vetted and validated your company’s product or idea in the most effective and efficient manner possible? Did you choose the right physician advisory board members or did you randomly pick physicians, who, for the right amount of equity, will “guide” extremely pivotal decisions for your company? Do you truly have the unbiased, voice-of-the-customer feedback you need to be successful?

These are just of few of the major factors can make or break your company in the difficult world of medical startups. Too many startups fail because they focus on product design, manufacturing, marketing and sales, but they never put in time and money at the very beginning to create a smart and effective market analysis. This real feedback comes not just from surveys and market analyses by consulting corporations that don’t really get it, but from real teams who are in the trenches on a daily basis, making decisions regarding the success of your product.

Who are these entities that can make or break your company, and what guides their decision making process? Where do you get the right consulting and feedback to navigate through the startup minefield? In general, most medical startups have to win over three major entities to succeed:

  1. Direct healthcare providers
  2. Medical Device Industry and/or Big Pharma
  3. Purchasing organizations

Moreover, three big factors influence each of these three stakeholders’ decision-making processes when it comes to whether they will support your product or let it wither on the vine. Those factors are:

  • Therapeutic effectiveness
  • Innovative Edge
  • Value Proposition

Let’s look at each group and examine how those three factors rank in importance in the decision making process.

Direct Healthcare Providers

The term “direct healthcare providers” refers to those who physically touch the patients—physicians, nurses, technicians and allied health personnel, all of whom went through some type of specialty schooling to provide care. Their perspective comes from a traditional background: “Do no harm to your patient and do everything you can to help them.”

More than likely, they will also be the end users of your product. They will have a large influence on whether your product is demanded or not. So when these direct healthcare providers rank what factors influence them to choose a particular product or therapy, they tend to rank the “big three factors” in this order:

  1. Therapeutic Effectiveness: “Do I need this product to cure/fix/heal my patient?”
  2. Innovative Edge: “Is this the absolute best technology/product/device out there?”
  3. Value Proposition: “If this is twice as expensive as the last therapeutic modality, is it going to be four times better for my patient?”

Notice that Value Proposition is ranked last. Healthcare providers sometimes pay little attention to price, but they put a lot of weight on the effectiveness of the product. It just makes sense from their perspective.

Medical Device Industry and/or Big Pharma

The Medical Device Industry and/or Big Pharma include the organizations that will either acquire your product and support your exit, or destroy you by direct competition and deep pocketbooks. Competition, profits and investors govern their actions. They, too, want the very best for patients—but their ranking of the “big three factors” may look different:

  1. Innovative Edge: “Is this product better than what’s currently in the marketplace?”
  2. Value Proposition: “Will the costs of R&D and through-put to market be recouped? Will the product bring in a better-than-average return on our investment (ROI) ?”
  3. Therapeutic Effectiveness: “Does the product function effectively without hurting anyone?”

These large entities want to find the “darling” company that is well poised for acquisition, due to its innovative edge—in the hopes of big payoffs down the line.

Purchasing Organizations

Finally, the purchasing organizations that foot the bill for these technologies have a unique burden of their own when it comes to appropriating healthcare funds. From insurance providers and Group Purchasing Organizations (GPOs) to hospital committees, these groups hold a great deal of power: They control where precious healthcare dollars are spent. When they budget out the billions of dollars spent each year, the “big three factors” affect their spending differently:

  1. Value Proposition: “Does that new product/service actually increase patient outcomes—with numbers to prove it—while costing less?”
  2. Therapeutic Effectiveness: “Yes, it heals the patient, but is it really significantly better than the product it is replacing?”
  3. Innovative Edge: “We want to standout from everyone else, too, but do we have the budget to push the envelope of innovation?”

An insurance provider can kill a product simply by not approving it for reimbursement. A hospital can remove your product from its list of GPOs simply because your price point is too high. Thus, understanding purchasing organizations’ motivations is extremely important if you want to survive.

Putting It Into Practice

With each entity ranking differently the priority of the “big three factors,” how do you bridge the gap between them and create better outcomes for patients while keeping your medical startup alive? Can one product effectively appease all groups?

Harmony between the three groups can only occur with proper connectivity between them in an unbiased, voice-of-the-customer feedback loop. MedtoMarket Consulting is a unique consortium of consultants derived from all three major entities. Bringing together the right team early in the process is not just a smart idea; it is essential, since it is the number one reason startups fail is bringing a product to market that no one wants. Through the use of a “360-degree Medical Consulting Team,” each of the team members brings forth the voice of the customer for each entity. An elite team of consultants, who down the road can be your champions, guides vital company decisions.

Here is an example of how this works: A startup company has a pre-FDA prototype for a remarkable new product for dialysis. A team is built around the product to possibly include:

  1. Healthcare providers, including nephrologists and vascular surgeons, surgical technicians, dialysis nurses and/or lab technicians
  2. Medical Device Industry and/or Big Pharma, including device reps, distributers, venture capital partners, testing and human factors engineering specialists and/or regulatory experts
  3. Purchasing Organization representatives, including supply-chain managers, GPO representatives, insurance reimbursement panel members and/or hospital association members

With the team in place, the startup company has the tools necessary to design and develop a product that:

  • Healthcare providers actually want to use because there is a true need for it, and it brings about better patient outcomes
  • Medical Device Industry and/or Big Pharma want to acquire, due to the innovative edge it adds to the company’s portfolio competitiveness
  • Purchasing Organization want to purchase from because of the products’ positive medi-economic benefits.

Why don’t all startups go down this path? Unfortunately, the current healthcare system sometimes does not incentivize using the voice of the customer feedback loop as much as it should. Exposure to healthcare providers has been weakened by regulatory policy, such as the Sunshine Act. Complex and costly regulatory hurdles also make it difficult for small startups to appropriate funds for consulting early on, and the rising cost of healthcare has forced many hospitals, GPOs and insurance providers to cut back on purchasing new and innovative technologies.

That’s why it’s more important than ever for medical startups to do what they can to incorporate voice-of-the-customer feedback early in their development. In the new world of healthcare reform and the Affordable Care Act, medical startups who receive proper feedback have a shot at succeeding more often than just 10 percent of the time.

Aaron Ali, M.D.

CEO and Cofounder, MedtoMarket Consulting

Aaron A. Ali is a board certified anesthesiologist and entrepreneur who is the CEO and Cofounder of MedtoMarket Consulting, Inc. He serves on the Physician Advisory Board and Board of…

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